In manufacturing, cash moves along the bill of materials. Steel, chips, resins, castings, PCBs, harnesses—each tier adds lead time, minimum order quantities, and a currency the factory does not control. The finance job is to turn purchase orders into predictable cash outflows without stalling production or leaking basis points to FX, bank fees, or reconciliation friction. That means treating payable automation as an operating system, wiring payment triggers to Incoterms, and choosing trade-finance instruments that match supplier risk and production cadence.
How money flows through a build: PO→goods→invoice→cash
Start with the canonical flow and remove mystery at each step.
- Purchase order is the commercial contract: currency of account, price breaks, Incoterms, delivery windows, quality standards, penalties, and whether deposits or progress payments apply. Every downstream cash decision inherits from it.
- Goods receipt (GRN/ASN) is the first objective signal. If you chose terms that transfer risk before goods arrive, GRN is not the trigger—your payment engine must know that.
- Supplier invoice references PO lines, shipment lots, and agreed surcharges (packing, molds, testing). It should arrive in the PO currency with the tax presentation you negotiated.
- 3-way match automates approval; exceptions route by category—price variance, quantity variance, freight adders, tax code.
- Payment run selects currency wallets and rails, locks the exchange rate, and posts idempotent instructions with remittance that the supplier’s AR can auto-apply.
If you cannot explain, for a given PO line, which event authorizes cash and why, you will run a manual AP shop forever.
Incoterms decide the payment trigger window
Incoterms define delivery obligations and risk transfer—not who pays whom—but they determine when you can safely move cash.
- EXW/FCA: buyer takes risk early. You can tie deposits to booking and a main payment to handover to first carrier; GRN is too late.
- FOB/CFR/CIF: seller crosses the ship’s rail; payment triggers often align with on-board date from the bill of lading. Insurance (CIF) does not change cash trigger, only cost components.
- DAP/DDP: seller owns destination leg; safe triggers are customs cleared and delivery to site. For DDP, local tax handling must be in the PO; otherwise AP will invent rules at month-end.
Write these triggers as parameters in your payment rules, not as tribal knowledge. Store the evidence: EDI events, eBL timestamps, delivery notes.
Deposits, milestones, retention—make them computable
Tooling, bespoke dies, NRE (non-recurring engineering), and long-lead components rarely fit “pay on invoice.”
- Deposits at PO (10–30%) protect allocation for scarce inputs; pay on proforma invoice and attach the deposit balance to the PO so final invoices net it off automatically.
- Milestones (sample approval, PPAP/FAI pass, first article, mass production start) unlock staged payments; evidence is a signed quality record, not an email.
- Retention (5–10%) covers latent defects or late delivery claims; release on elapsed time or acceptance testing. Keep retention in a separate ledger line to avoid confusing suppliers’ AR.
Payable automation that actually lowers unit cost
Automate where it matters; quality beats sheer speed.
- Supplier master: KYB, bank account name-match, tax IDs, invoice format agreements (e-invoicing where mandated), and corridor-level rail preferences.
- Virtual accounts/IBANs: assign per supplier (or per supplier entity) so inbound credit notes and refunds auto-match; suppliers see remittance that maps cleanly to their AR.
- ISO 20022 statements: ingest structured remittance; stop parsing PDFs.
- Currency catalogs: per-supplier currency of account plus rounding and tolerance bands; store rate source and timestamp per payment for audit and variance analysis.
- Exception engine: classify variances (price, quantity, FX, freight, tax); each class has an SLA and approver. Remove “misc” from the vocabulary.
Targets worth publishing: >98% straight-through match by count, >95% by value, and <15 manual minutes per 1,000 invoices.
Picking rails and currencies: cheap is not always least cost
- Local account-to-account rails: SEPA Instant, Faster Payments, ACH-equivalents, Pix, UPI-linked—use where suppliers bank locally and values fit rail limits. Latency is low; remittance is rich.
- SWIFT wires: still the default for high-value or exotic corridors; pair with pre-advice and shared charge codes you agreed up front.
- Cards/wallets: niche for indirect spend or marketplaces; rarely fit OEM payables.
- Currency choice: pay the supplier’s functional currency when their cost base and AR are local; you will capture savings in price rather than in FX spread. Use your own currency only if you have negotiation leverage and stable forward coverage.
A payment intermediary can accelerate corridor coverage and virtual account allocation when you do not want a dozen bilateral bank setups. This is where a specialist such as Collect&Pay earns a place in the stack: multi-currency accounts, supplier-specific virtual IBANs, and audit-grade reconciliation across regions.
Trade-finance instruments that fit production, not just credit policy
Choose the instrument that matches risk, documentation discipline, and lead time.
- Open account with dynamic discounting: baseline for trusted tier-1s. Offer early-pay (e.g., 2/10 net 30) funded by your cash or a platform; secure price and continuity in tight supply.
- Reverse factoring (SCF): your credit unlocks your supplier’s DSO; you pay on original terms, suppliers get T+2 liquidity. Align with forecast to avoid “free money” chasing the wrong SKUs.
- Documentary collection (URC): D/P for conservative lanes; bank releases documents on your payment. Good when cargo is standard and counterparties are known.
- Letters of credit (UCP): high assurance for new suppliers, sanction-sensitive goods, or bespoke capital equipment. Be precise: latest shipment date, partial shipments, presentation period, tolerances. LC costs less than a production line stoppage.
- Standby LCs/guarantees: performance or advance-payment protection where deposits or long tooling cycles are involved.
- Inventory financing/warehouse receipts: post-import working capital; useful when duties/VAT are payable early and sales are later.
Wire these to your payment engine: when documents comply, funds release; when they don’t, exceptions trigger with evidence attached.
Pricing and FX: stabilize contribution margin
Manufacturing runs on thin deltas. FX noise can erase them.
- Natural hedging: buy inputs and pay labor in the same currencies in which you sell; structure POs and sales orders to align.
- Rolling forwards: cover forecast net exposures 1–6 months out; ladder coverage so you do not roll 100% on a bad day. Use NDFs where deliverability is restricted.
- Rate locks: at payment instruction, not at PO issue; store rate, source, and timestamp on the payment event and on the invoice match.
- Supplier price indexation: tie price reviews to raw-material indices with transparent windows; turn tug-of-war into formula.
- Shadow pricing: in S&OP, simulate FX and commodity bands; convert into SKU-level guardrails for commercial and procurement.
Report FX cost as basis points of COGS and of total spend; split realized vs translation, and covered vs uncovered.
Quality, claims, and debit notes—cash consequences, not paperwork
When parts fail incoming QC or PPAP, treat the debit note as a first-class monetary event with its own currency and rate lock. Link it to the affected shipments and lots; decide whether to short-pay, net on next invoice, or seek cash refund. For warranty cost recovery, attach field failure data and repair logs; no supplier will pay on anecdotes. Keep claims out of email—use a ledgered object with state transitions and approvals.
Multi-entity and toll manufacturing
Contract manufacturers (EMS, ODM, tollers) complicate cash because title may not pass even as materials move. Your AP rules must understand consigned inventory, back-flush, yield loss thresholds, and scrap recovery. When you pay a toller for processing only, decouple material value from conversion cost; their invoices should carry the latter, while the former stays in your inventory ledger. Payment triggers then tie to production report acceptance and WIP milestones, not to goods receipt alone.
Tax and e-invoicing: reduce rework
- VAT/GST: agree tax codes per line; don’t let suppliers guess. For cross-border services (engineering, tooling), document place of supply and reverse-charge mechanics.
- E-invoicing mandates: connect early where required; mismatched schemas create DSO creep on the supplier side and AP aging on yours.
- Withholding: some markets require withholding on services paid to non-residents; build it into payables so you don’t retro-collect under duress.
Data model and reconciliation discipline
Store money as integer minor units + ISO currency. Every monetary event carries rate, source, timestamp, and an idempotency key. Map PO→shipment→invoice lines one-to-one where possible; when vendors ship mixed lots, store lot IDs and quantities so debit notes and recalls don’t become archaeology. Use virtual accounts to segment suppliers and legal entities; ingest ISO 20022 statements so remittance survives. North-star: >98% auto-match by count, >95% by value.
Metrics that predict cash reliability
- Days Payable Outstanding (DPO) by tier and corridor; early-pay utilization vs negotiated discounts.
- Straight-through match rate; exception aging by variance class.
- FX cost in bps of COGS; hedge coverage vs policy.
- Share of spend on local A2A rails vs wires; cost per successful payment (all-in).
- Claims/debit notes as % of invoice value; average time to close claims.
- Supplier on-time-payment rate and payout failure rate (account mismatch, closed account, sanctions hits).
A pragmatic 90-day rollout
- Days 1–30: bind Incoterm payment triggers to system events; standardize supplier master data, name-match on accounts, and currency catalogs; enable virtual IBANs per supplier.
- Days 31–60: turn deposits/milestones/retention into native objects; switch top corridors to local A2A rails; ingest ISO 20022 statements; start rolling forwards on net exposures.
- Days 61–90: launch dynamic discounting for trusted suppliers; wire LC/collection status to the payment engine; publish a finance dashboard (DPO, match rate, FX bps, exception aging, early-pay ROI).
When a payment intermediary helps
If you need multi-currency accounts for suppliers across regions, virtual IBAN segmentation for deterministic remittance, and fast access to local rails—without stitching a dozen bank integrations—short-list a specialist such as Collect&Pay. Weight corridor breadth, uptime, payout failure handling, and line-level fee/FX transparency more than headline fees.